The Elephant Vampire in the Room

The MPF Death Slide clearly illustrates the inescapable doom of the LM MPF Ponzi structure. Authorities across the world, including agencies in the 'third world' countries of the Asean community have, for decades, been seizing on operators of schemes (Sunshine Empire, Raja Noor Asma Raja Harun, 2018 Winter Olympics) displaying even vague Ponzi like profiles for precisely the effects portrayed in LMIVC's MPF Death Slide.

Aspects of the LM debacle exposed here spotlights again the shameful failure of Australian authorities to recognise and react to public domain intelligence in the interests of investors in Australia's infrastructure development.

Modern society puts tremendous emphasis on education, a career, hard work, honesty and respect for others. Value these items through adult life and whether one is in, at, or approaching retirement, one is likely to have the funds to reward such commitment with a comfortable retirement. Yet thousands of hard working, driven, career professionals who invested in the LM MPF have had their retirement destroyed.

W h e r e d i d t h e m o n e y g o ?

For at least five years LM's Managed Performance Fund (MPF) paid commitments to existing investors from new investors monies. Based on the loan value segmentation information available, the returns offered to investors, and the pitiful contribution to the funds survival from interest bearing loans to property developers, five years was easily survivable without any year on year growth in investor volume. However, due to the heavily fraudulent sales and marketing activities LM deployed, there was on average approximately 40% growth each year for at least four years. Growth of that magnitude created tremendous liquidity and with it ample opportunity for mis-appropriation of funds.

Korda Mentha's (KM) 7th update to investors notes that, at collapse, total available funds for investment were at Au$383m including 3rd party borrowings, FX gains, and interest. The same 7th update to investors reported that loan value segmentation was 80% active property assets and 20% loans including fully provisioned, litigation required and the Peter Drake loans. That desperately inadequate contribution to fund survival is illustrated in the LMIVC Death Slide. So, how well was the 80% allocated to active property assets managed? Within those active property assets is one direct investment which we know to be the Maddison Estate. Maddison is recorded in several accounts to have been allocated 60% (or just less than 80% of the 80%) of the funds value. A total of Au$230m was allocated to Maddison..

Between 2008 and 2012 inclusive the year on year growth of the LM Managed Performance Fund (MPF) looked like this:

Table Notes:

• 1. Unit value was $1 throughout this period.

It is not unreasonable to assume that funds allocation to Maddison reflected a similar growth profile. The following reported facts list would appear to underline that assertion as well as provide some other interesting observations.

Maddison Facts:

• 1. LM paid Au$89m for the 118 hectare (13*13 football pitches) piece of land Between 2007 and 2009. Ref 3 below.

  2. KM valued the land during Aug / Sep 2013 at Au$21.4m - Au$24m. Ref 1 below.

  3. LM MPF had loaned Au$234m to the project in a 2nd mortgage position. Ref 1 below.

     1. Sep 2011 loan to Maddison stood at AU$142,155, 456. Ref 2 below.

     2. Jul 2012 increased to Au$191m. Ref 2 below.

     3. Aug 2012 increased to AU$211m. Ref 2 below.

     4. Sep 2012 increased to Au$217m. Ref 2 below.

  4. Notwithstanding the impressive increase in loans to Maddison, $75 million in less than a year, there was nothing to indicate an increase in value of that proportion. Gold Coast operatives confide that the site had not been fully cleared and other people already appear to be living on the 118 hectare estate. Neither were surveyors’ pegs easily visible to the naked eye. Ref 2 below.

  5. The owner of the Maddison property was Coomera Ridge Pty Ltd and this company has one director, Peter Charles Drake. Ref 2 below.

  6. The second mortgagee which had presumably been provided with the money from investors is a company called LM Coomera Pty Ltd (now renamed Maddison Estate Pty Ltd) which had one director also, Peter Charles Drake, and one shareholder, LM Coomera Holdings Pty Ltd. Ref 2 below.

  7. LM Coomera Holdings Pty Ltd company also has one director - Peter Charles Drake, and one shareholder, LMIM Asset Management Pty Ltd. Ref 2 below.

  8. LMIM Asset Management Pty Ltd has only one director and one shareholder too - Peter Charles Drake. Ref 2 below.

  9. Suncorp had invested Au$20.3m to the project in a 1st mortgage position. Ref 1 below.

Au$130m of investor funding over 5 years never saw Maddison earthworks conclude!

• 1. Did LM really pay Au$89m for this piece of land or was this a deal that allowed Au$89m to appear on records but much less 'change hands' including a cash kickback for agreement to record Au$89m as the sale price?

  2. (LMIVC feel completely justified in posing this and other probing questions based on repeated examples of Drake's dishonesty including lies about the use of licensed agents, fraudulent marketing material, the understated bankruptcy declaration and the scramble to move personal funds out of creditors reach as LM collapsed around him, to name but a few.)

  3. Were the circuitous Pty arrangements described in 5-8 above Drake's smokescreen for the plundering of over Au$130m (230m - Maddison purchase price of 89m)?

  4. Who (KM or ASIC?) is checking the books and records, access to which was obtained during January 2015, and what do they show?

  5. Have ASIC checked the Pty reports that Drakes four organisations described in 5-8 above were obliged to make to ASIC under the Australian Corporations Act 2001 and what do they show?

  6. Who (KM or ASIC?) is checking the bank accounts of these four Drake owned organisations against regular accounts reports submitted to ASIC and what do the checks show?

  7. Can we be assured that falsification of accounts will be reported to investors and pursued as fraud, a criminal offense?

Why, more than 2 years after the collapse are these fundamental questions still not answered?

References:

1. SMH Sep 20 2013

2. SMH Oct 27 2012

3. Property Observer Mar 24 2013

4. Korda Mentha Update no. 7

   1. Korda Mentha Update no. 8 - The 'Maddison' Update.

Footnote (12th May 2015):

Korda Mentha has been approached for comment on the questions raised in this article. Korda Mentha make the point that LM did not purchase the land. In other words the whole of the MPF $230m was allocated to development of the land. This frankly is even more alarming. Almost a quarter of a billion Au$ is unaccounted for!